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Evidence of accounting chicanery at Dell

Restatements possible

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Dell says an audit committee convened to probe its bookkeeping has found evidence of misconduct and accounting errors that may result in restatements to previous financial results. The preliminary finding, which also disclosed potential deficiencies in the company's financial controls, is the latest announcement to raise doubts about the accounting of the cut-rate PC maker.

As a result of the continuing inquiry, Dell said it would not meet an extension of April 18 for filing its Form 10-K for the fiscal year that ended last month. Dell previously secured the extension because it said the investigation was holding things up.

In addition to the internal audit committee, the SEC and the US Attorney's office for the Southern District of New York are also scrutinizing Dell's finances. Once upon the time, Dell said the investigations were unlikely to result in material changes to previously released financial results. It's unclear exactly what is causing Dell to change that assessment now, but a lawsuit filed last month may provide clues. The class action accused Dell of inflating profits by as much as $800m courtesy of kickbacks Intel paid for being the PC maker's exclusive provider of microprocessors.

It's fair to say the past 18 months haven't been Dell's best. In January the company's board ousted Kevin Rollins as CEO following a slow and painful slide in market share and customer satisfaction ratings. A recall of more than four million laptop batteries last year didn't help matters.

Earlier this month, Dell reported a 32-percent drop in annual net income as revenue from desktop and laptop machines declined. Suddenly, the company's direct model of manufacturing isn't looking like such a strategic advantage.

Dell's shares fell more than 2 percent in after hours trading following today's disclosure. They've slipped a little more than 8 percent since the start of the year. ®